Easter Term [2015] UKSC 27 On appeal from: [2013] EWCA Civ 643

JUDGMENT
The Trustees of the Olympic Airlines SA Pension
and Life Assurance Scheme (Appellants) v Olympic
Airlines SA (Respondent)
before
Lord Neuberger, President
Lord Mance
Lord Sumption
Lord Reed
Lord Toulson
JUDGMENT GIVEN ON
29 April 2015
Heard on 2 and 3 February 2015
Appellants Respondent
Gabriel Moss QC David Chivers QC
Marcus Haywood Sebastian Prentis
(Instructed by Baker and
McKenzie LLP
)
(Instructed by Philip Ross
Solicitors
)
Page 2
LORD SUMPTION: (with whom Lord Neuberger, Lord Mance, Lord Reed
and Lord Toulson agree)
1. The question at issue on this appeal is what connection must a foreign
company have with the United Kingdom to entitle an English court to wind it
up, if its centre of main interests (or “COMI”) is in another member state of
the European Union. The answer depends on the meaning of two words,
“economic activity”, in EU Regulation 1346/2000 on Insolvency Proceedings.
The legal framework
2. Under section 221 of the Insolvency Act 1986, the English court has
jurisdiction under its domestic law to wind up a foreign company. However,
in the case of companies whose COMI is in another member state of the EU,
the exercise of this power is constrained by the Regulation. Article 3 of the
Regulation provides as follows:
“Article 3
International jurisdiction
1. The courts of the Member State within the territory of which
the centre of a debtor’s main interests is situated shall have
jurisdiction to open insolvency proceedings. In the case of a
company or legal person, the place of the registered office shall
be presumed to be the centre of its main interests in the absence
of proof to the contrary.
2. Where the centre of a debtor’s main interests is situated
within the territory of a Member State, the courts of another
Member State shall have jurisdiction to open insolvency
proceedings against that debtor only if he possesses an
establishment within the territory of that other Member State.
The effects of those proceedings shall be restricted to the assets
of the debtor situated in the territory of the latter Member State.
Page 3
3. Where insolvency proceedings have been opened under
paragraph 1, any proceedings opened subsequently under
paragraph 2 shall be secondary proceedings. These latter
proceedings must be winding-up proceedings.”
3. The COMI is not a term of art, and is not defined in the body of the
Regulation. Recital (13), however, recites what is perhaps implicit in the
phrase, namely that it “should correspond to the place where the debtor
conducts the administration of his interests on a regular basis and is therefore
ascertainable by third parties”. Jurisdiction to begin secondary insolvency
proceedings in another European jurisdiction is established on a very
different basis. It depends on the existence of an “establishment” within its
territory. An “establishment” is defined in article 2(h) as
“any place of operations where the debtor carries out a nontransitory economic activity with human means and goods.”
“Goods” is hardly a satisfactory English word to use in this context. It is
apparent from the equivalent term in the other language versions that it means
the same as “assets” (“biens”, “Vermögen”) in article 3(2).
The facts
4. Olympic Airlines SA was wound up on the direction of the Athens Court of
Appeal on 2 October 2009. Since then, the main liquidation proceedings have
been in progress in Greece.
5. The appellants are the trustees of the company’s pension scheme. Olympic is
the principal employer in the scheme and the only employer currently
participating in it. Under the rules of the scheme, it must be wound up upon
the liquidation of Olympic Airlines. Upon its winding up, a deficit was
ascertained of (in round numbers) £16m, which Olympic is bound to make
good under section 75 of the Pensions Act 1995. On 20 July 2010, the trustees
presented a winding-up petition against the company in England on the
ground that it was unable to meet this liability. The size of Olympic’s
deficiency means that they are unlikely to recover much. But the winding-up
order was necessary in order that the scheme should qualify for entry into the
Pension Protection Fund under section 127 of the Pensions Act 2004. One of
the conditions of entry was that a “qualifying insolvency event” should have
occurred, and the only available one was that the company should have been
ordered to be wound up under the Insolvency Act 1986: see Pensions Act
Page 4
2004, section 121(3)(g). Accordingly, the question arises whether Olympic
had an “establishment” in the United Kingdom on 20 July 2010 so as to
justify the presentation of a winding-up petition on that date.
6. Olympic had had a number of offices in the United Kingdom, but the only
ones which it still occupied on 20 July 2010 were its former UK head office
at 11 Conduit Street in London, which it leased from an associated company.
The Chancellor heard evidence about the status of 11 Conduit Street and the
activities that were carried on there at the relevant time. He and the Court of
Appeal made the following findings:
(1) On 28 September 2009, shortly before the commencement of the
liquidation proceedings in Greece, the area manager for Olympic in
London was instructed that the company would cease all commercial
operations as from 00.01 on the following day. From that time all flight
operations were undertaken by an unrelated company.
(2) On 17 June 2010, the Greek liquidator informed the trustees of the
pension fund that the employment of the 27 remaining UK staff would
be terminated with effect from 14 July 2010. Three persons, Mr Savva
the General Manager, Mr Platanias the Finance and Purchasing
Manager, and an accounts clerk, were retained thereafter on short term
ad hoc contracts. At the time of the English winding-up petition, they
were the only persons still working there.
(3) Mr Savva attended the office at Conduit Street as required. In practice
this was about three or four times a week. His function was to deal
generally with anything requiring attention, principally instructions
and requests from the liquidator and staff in Athens retained by him.
(4) Mr Platanias arranged the payment of bills for his own salary and Mr
Savva’s, council tax, electricity and cleaning, and for minor repairs
following a break-in. He reconciled bank statements, copied and sent
relevant documents to the liquidator and his staff in Athens and dealt
generally with post and telephone calls. He supervised the disposal of
the company’s assets in England, a process which had begun before
the winding-up petition and continued for some time afterwards. These
comprised a current and deposit account, computers and office
furniture, fixtures and fittings and computerised accounting records.
They had no substantial realisable value. The Chancellor found that
Mr Platanias’ functions were “exactly what is to be expected from one
Page 5
responsible to an overseas liquidator for winding up the affairs of a
foreign branch of a formerly substantial overseas trading company”.
(5) The clerk assisted in these activities under the direction of Mr Savva
or Mr Platanias.
The decisions of the courts below
7. The Chancellor considered that to be “economic” an activity did not have to
amount to “external market activity”: [2013] 1 BCLC 415. He found that
these activities constituted “non-transitory economic activities” for the
purpose of the definition of “establishment” and made the winding-up order.
The Court of Appeal (Moore-Bick LJ, Sir Stephen Sedley and Sir Bernard
Rix) overruled him: [2014] 1 WLR 1401. In summary, they thought that the
relevant “economic activity” had to consist of more than the activity involved
in winding up the company’s affairs, and that the three remaining employees
were doing no more than that.
8. After the Court of Appeal handed down its decision, the law was changed. A
statutory power under the Pensions Act 2004 was exercised so as to prescribe
an additional “insolvency event” for the purpose of section 121. The
additional event was defined in such a way as to apply only to cases in which
insolvency proceedings had been commenced in another member state of the
EU in respect of an employer whose COMI was located in that state, and
secondary proceedings had been begun in the United Kingdom but had
subsequently been set aside for want of jurisdiction: see the Pension Fund
(Entry Rules) (Amendment) Regulations 2014 (SI 2014/1664). This appears
to be a class of one: the present case. However, for technical reasons, the
present issue remains important even though the effect of the amendment is
to enable the Olympic pension scheme to qualify for the Pension Protection
Fund on the basis of the Greek proceedings. The reason is that where the new
insolvency event applies it is deemed to occur on the fifth anniversary of the
commencement of the Greek proceedings, ie on 2 October 2014. This is
rather more than four years after the date of the winding-up order made by
the High Court. This matters, because of the possibility that the Board of the
Pension Protection Fund might require the trustees of the Olympic scheme to
claw back any overpaid benefits between the commencement of the Greek
liquidation proceedings and the relevant “insolvency event”. If that event
occurred on 2 October 2014 instead of 29 May 2012, the period over which
the benefits may be clawed back will be longer.
Page 6
Authorities
9. The text of the Regulation is largely derived from the Convention on
Insolvency Proceedings which was opened for signature in Brussels on 23
November 1995, but failed for want of a sufficient number of signatories.
The Convention had been the subject of an authoritative commentary by
Professor Miguel Virgos and M Etienne Schmit. According to the VirgosSchmit Report (3 May 1996, OJL 6500/96), the definition of “establishment”
reflected a compromise between universalist states, who favoured a single
liquidation with universal effect, and territorialist states, who wished to
recognise a jurisdiction to open national territorial proceedings based on the
mere presence of local business assets whether or not there was any local
place of business. The compromise consisted in the acceptance by the
territorialists that jurisdiction to open secondary proceedings should be
founded on the existence of a local “establishment”, but with a broad
definition of the activities that must be carried on there. At para 71, the Report
commented on the resultant definition as follows:
“71. For the Convention on insolvency proceedings,
‘establishment’ is understood to mean a place of operations
through which the debtor carries out an economic activity on a
non-transitory basis, and where he uses human resources and
goods. Place of operations means a place from which economic
activities are exercised on the market (ie externally), whether
the said activities are commercial, industrial or professional.
The emphasis on an economic activity having to be carried out
using human resources shows the need for a minimum level of
organization. A purely occasional place of operations cannot
be classified as an ‘establishment’. A certain stability is
required. The negative formula (‘non-transitory’) aims to avoid
minimum time requirements. The decisive factor is how the
activity appears externally, and not the intention of the debtor.
The rationale behind the rule is that foreign economic operators
conducting their economic activities through a local
establishment should be subject to the same rules as national
economic operators as long as they are both operating in the
same market. In this way, potential creditors concluding a
contract with a local establishment will not have to worry about
whether the company is a national or foreign one. Their
information costs and legal risks in the event of insolvency of
the debtor will be the same whether they conclude a contract
with a national undertaking or a foreign undertaking with a
local presence on that market. Naturally, the possibility of
opening local territorial insolvency proceedings makes sense
Page 7
only if the debtor possesses sufficient assets within the
jurisdiction. Whether or not these assets are linked to the
economic activities of the establishment is of no relevance.”
10. This provides much the most useful source of guidance. By comparison, there
is very limited help to be had from decided cases. Decisions on the location
of a company’s COMI are addressed to a different test. Decisions on what
constitutes an “establishment” can rarely be more than illustrative given the
fact-sensitive nature of the inquiry.
11. In (Case C-396/09) Interedil Srl (in liquidation) v Fallimento Interedil Srl
[2011] ECR I-9939: [2012] BUS LR 1582, the Court of Justice of the
European Union dealt with the question whether the presence of immovable
property was enough to confer jurisdiction to open secondary insolvency
proceedings. The court did not specifically address the question what
constituted “economic activity”, but it dealt generally with the definition of
“establishment” at paras 61-63 as follows:
“61. Article 2(h) of the Regulation defines the term
‘establishment’ as designating any place of operations where
the debtor carries out a non-transitory economic activity with
human means and goods.
62. The fact that that definition links the pursuit of an economic
activity to the presence of human resources shows that a
minimum level of organisation and a degree of stability are
required. It follows that, conversely, the presence alone of
goods in isolation or bank accounts does not, in principle,
satisfy the requirements for classification as an ‘establishment’.
63. Since, in accordance with article 3(2) of the Regulation, the
presence of an establishment in the territory of a member state
confers jurisdiction on the courts of that State to open
secondary insolvency proceedings against the debtor, it must
be concluded that, in order to ensure legal certainty and
foreseeability concerning the determination of the courts with
jurisdiction, the existence of an establishment must be
determined, in the same way as the location of the centre of
main interests, on the basis of objective factors which are
ascertainable by third parties.”
Page 8
12. Two English decisions illustrate the application of the test to particular facts.
In Shierson v Vlieland-Boddy [2005] 1 WLR 3966, the Court of Appeal was
concerned with an English debtor whose COMI was in Spain but who let and
managed premises in England. It cited and implicitly adopted para 71 of the
Virgos-Schmit Report, and concluded that the letting and management of the
premises themselves was enough to make them an “establishment”. In In re
Office Metro Ltd [2012] BCC 829, Mann J was concerned with secondary
proceedings in England in respect of an English company whose COMI was
in Luxembourg and which was in liquidation there. It used an office in
England, at which it handled the settlement of liabilities on guarantees of
leases to associated companies, dealt with Companies Act filings, forwarded
post, and occasionally took legal and accountancy advice. Perhaps wisely,
the judge did not attempt a general definition of “economic activity”, but
expressed the view that the activities carried out at the relevant premises were
not economic activities and that in any event they were transitory.
Application to the present case
13. The definition in article 2(h) must be read as a whole, not broken down into
discrete elements, for each element colours the others. The relevant activities
must be (i) “economic”, (ii) “non-transitory”, (iii) carried on from a “place of
operations”, and (iv) using the debtor’s assets and human agents. This
suggests that what is envisaged is a fixed place of business. The requirement
that the activities should be carried on with the debtor’s assets and human
agents suggests a business activity consisting in dealings with third parties,
and not pure acts of internal administration. As the Virgos-Schmit Report
suggests, the activities must be “exercised on the market (ie externally)”. I
am inclined to think that the same point was being made by the Court of
Justice when it observed in Interedil that the activities must be “sufficiently
accessible to enable third parties, that is to say in particular the company’s
creditors, to be aware of them”. I do not think that this can sensibly be read
as requiring that the debtor should simply be locatable or identifiable by a
brass plate on a door. It refers to the character of the economic activities.
They must be activities which by their nature involve business dealings with
third parties.
14. Manifestly, some activities which a company in liquidation might carry on,
may satisfy the definition. This may happen not only where the liquidator
carries on the business with a view to its disposal but also, for example, where
he disposes of stock in trade on the market. On the other hand, where a
company has no subsisting business it is clearly not the case that the mere
internal administration of its winding up will qualify. Such activity would not
be “exercised on the market”; moreover, if it were enough to establish
jurisdiction then the requirement for “economic activities” would add little
Page 9
or nothing to the rest of the definition. Indeed, the definition would almost
always be satisfied by a debtor who retained premises in the United Kingdom
with inevitable outgoings such as the payment of rent, business rates, and so
on.
15. It is unnecessary in the present case to undertake the difficult task of drawing
a precise boundary between these extremes because, on any reasonable view
of the meaning and purpose of the definition, the facts of this case are on the
wrong side of it. Olympic was not carrying on any business activity at 11
Conduit Street on the relevant date. The last of the company’s business
activities had ceased some time before. All that Mr Savva and Mr Platanias
were doing was handling matters of internal administration associated with
the final stages of the company’s disposal of the means of carrying on
business. The company cannot therefore be said to have had an
“establishment” in the United Kingdom.
Reference under Article 267 TFEU
16. In my opinion, the necessity for showing at least some subsisting business
with third parties before the definition can be satisfied is acte clair, even if
the exact nature of that business and the degree to which it must be visible to
outsiders may be open to argument. Since in this case no external business at
all was carried on from 11 Conduit Street, there is no point of principle calling
for a reference.
Disposal
17. I would dismiss the appeal.